What Is S-Corp Election?

By default, a single-member LLC is taxed as a sole proprietorship (all income subject to self-employment tax). Electing S-Corp status means the business pays you a reasonable salary — which is subject to payroll taxes — and distributes remaining profits as a dividend, which avoids self-employment tax. For a business earning $150K+ in net profit, this can reduce annual taxes by $5,000–$20,000 or more. The election involves additional compliance (payroll processing, quarterly filings, reasonable compensation determination), which is why it isn't right for every business. Timing also matters: the election must be filed by March 15 for the current year in most cases.

For self-employed professionals and small business owners, an S-Corp election is often the single highest-impact tax strategy available. Yet many business owners who would benefit from it have never been told about it. A tax advisor can model whether the savings outweigh the compliance cost given your income level and business type.